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Housing bubble or housing riddle?
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Reversal of fortunes

Experts are also not too sure whether there is any correlation between the 4 trillion yuan fiscal stimulus plan and the reversal of fortunes in the real estate market and also whether the package would continue to help in creating more choices for potential home-owners and investors.

Housing bubble or housing riddle?
Housing bubble or housing riddle? [CFP]


Many argue that the stimulus plan is impacting the housing market in a positive way, something that is sweet music to Premier Wen Jiabao and his team of economic advisors, and boosting China's long anemic domestic consumption, at least in the housing market.

Home-buyers have not earned as mnya direct incentives from the stimulus plan as car buyers. There are some cuts in the interest rates, but not as much as in the case of cars with smaller engines.

What has made the difference is the plan by the government to build up urban public infrastructure in the last few years, especially subways and roads. This has made it possible for home-buyers who were once deterred by exorbitant downtown prices, to shop for cheaper houses in the more distant suburbs.

Subway development

Beijing is an example. The city did not embark on a large-scale subway development plan until 2004 when work on three new lines, with a total length reaching 80 km, began.

By the end of 2008, Beijing had eight subway lines in operation, with a total length of 200 km. According to planners, the city's subway network will expand to 561.5 km in 2020, exceeding that of New York City.

In tandem with all these, new housing complexes have sprung up even beyond the Fourth Ring Road, once considered the city limits. More housing projects are coming up beyond the Fifth Ring Road and Sixth Ring Road, and some even in distant suburban towns.

Some of the smaller towns in Hebei province, such as Yanjiao and Langfang, are already connected with the national capital city by expressways. They are now seeking light rail connections - for the purpose, as local officials put straightforwardly, of attracting people.

They are unlikely to be let down, now that a substantial part of Beijing's 4 trillion yuan stimulus package is allocated to the development of public infrastructure - both cross-regional and urban.

In fact, according to sources from the Beijing housing fair, most of the sales contracts actually went to the smaller units in the relatively distant suburban housing complexes. In contrast, the downtown high-end and luxury units, priced from 15,000 yuan per sq m up, had very few enquiries.

What all this leads one to conclude is that the government-sponsored road and subway projects are in a way a kind of indirect financial subsidy to home buyers in the more distant suburban housing projects - so long as they are willing to buy a car or to spend relatively more time on daily commutes.

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